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Pharmas in June 2018

Alphavalue’s pharma coverage outperformed the Stoxx 600 last month, returning 1.35% vs a decline suffered by the Stoxx 600. Shire, Sanofi, Roche, Vifor and Faes Farma were the best performers while Bayer, AstraZeneca and Novozymes were the worst performers.

After a year-and-a-half long review, Novartis has finally decided to spin off its eye-care business, Alcon, into a separately listed company. To be completed by H1 19, the listing is planned for SIX Swiss Exchange and New York Stock Exchange.

Sanofi, on the other hand, has finalised the sale of its European generics business to Advent International for €1.9bn. Although the company had put the business up for sale in 2015, it had taken a backseat due to other corporate actions – swap of its animal health business with Boehringer Ingelheim’s consumer health, and acquisition of Ablynx and Bioverativ.

Roche announced the acquisition of the remaining ~43% stake in Foundation Medicine for a deal value of $2.4bn and enterprise value of $5.3bn. Foundation specialises in comprehensive genomic profiling testing for cancer patients. The two companies also share strategic collaborations in the field of molecular information and genomic analysis. This is the second deal in which Roche has acquired its smaller partner, where it also had an existing stake (the first one being Flatiron early this year).

We see both acquisitions as solid management vision – investing in the future growth drivers of the sector (personalised medication as well as companion diagnostics).

R&D disappointments in the sector

Partners AstraZeneca and Eli Lilly had to terminate two phase III trials of theirexperimental drug, lanabecestat, for Alzheimer’s disease due to weak efficacy. Thiswas the third high-profile failure in the much-hyped BACE inhibitor space, after MSDand Janssen.

Much to the relief of GSK, Mylan received a complete response letter for its genericversion of GSK’s asthma/COPD inhaler Advair Diskus. Although the company calledthe issue as ‘minor deficiencies, which can be easily addressed, it does buy somemore time for GSK.

Dissent brewing in Takeda-Shire deal

As the Takeda CEO works towards convincing the shareholders for the Shireacquisitions, a group of ex-employees/shareholders, including some members of the founding family, is working towards blocking the deal. In addition to the gripe about the steep indebtedness from the acquisition, it is also reflective of the concerns of the cultural difference in the two companies. Although this group is too small (~1% of shareholding) to block the deal, which would require 25% voting against the proposal, it was able to garner 10% of the votes in favour of its recent proposal to necessitate advanced approval for large acquisitions. This raises eyebrows.

Pharmacy: next in line to be Amazon-ed?

Amazon stunned the US pharmacy space by announcing the acquisition of an online pharmacy, PillPack, on 28 June 2018. PillPack manages prescriptions and delivers customised dosage of medicines to the patients and was also reported to have been approached by Walmart. This unsettled the share prices of not only the pharmacies such as Walgreens, Rite Aid and CVS Health, but wholesalers, Cardinal Health, AmerisourceBergen and McKesson, also witnessed a slump in their share prices.

Although Amazon already has pharmacy licences in a few states and also sells OTCdrugs through Perrigo, the acquisition is being considered as disruptive for thepharmacies fearing its direct entry into the prescription market. On one hand, looking at a similar reaction when Amazon acquired food retailer, Whole Foods, last year, and how the retail stocks have mostly recovered from the shock, the reaction in the pharmacy space can also be considered as early. Plus, pharma is a much more complex space than food, and Amazon will have to stand up to many challenges.

However, although it is not clear what course Amazon will take, its disruptive trait has been enough to stir the industry – the incumbents have already been on aconsolidation spree.

CAR-t therapies win EU recommendation

The unconventional treatment, CAR-t, which caught the attention of everyone with abreakthrough efficacy and a consequent approval in the US last year, has received apositive recommendation from the European Medicines Agency.

The two medications are Kymriah from Novartis and Yescarta from Gilead and the recommendation makes their approval case stronger. Kymriah is approved in the US for paediatric and young adult patients (up to 25 years of age) with a form of acute lymphoblastic leukaemia, and for adult patients with relapsed or refractory DLBCL (second line or later).

The two therapies, however, are yet to show commercial success – Kymriah could generate sales of just $12m in Q1, way behind our expectations. Lundbeck finally gets a CEO Dr Deborah Dunsire will be joining on 1 September 2018. With over 30 years in the industry, she brings in rich oncology and neuroscience experience. She is mainly known for her stint as the CEO of Millennium Pharmaceuticals (acquired by Takeda) and has also worked with Novartis.

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Founded in 2007, AlphaValue is the world’s leading provider of Independent European Equity and Credit Research. We provide comprehensive, unconflicted research-only (no execution, no corporate finance) coverage of c. 480 European mid and large cap stocks. We have an average of 46% of negative recommendations at any one time. Learn more at www.alphavalue.com